The real mission of pricing: beyond numbers to management partner

Abstract

Purpose

The purpose of this paper is to point out that most pricing organizations are not forward looking, rather they are focused on outdated price points and reviewing past negotiations. For the greatest return, pricing organizations must be strategic, and this will boost returns from 1-2 per cent (which may represent the “Hawthorne Effect”) to 5-10+% revenue growth.

Design/methodology/approach

The author examines best practices in the airline, hi-tech, software, chemical, diagnostic testing and manufacturing industries. Case studies show that sales and other line organizations are highly adept at subverting pricing rules not compatible with market dynamics.

Findings

Pricing organizations must be designed with broader scope of influence and situated so as to work closely with other functions. Pricing organizations require “analytic horsepower” to correctly anticipate the market, and be credible within company. The head of pricing must be sufficiently senior (VP or SVP) to be part of top-management dialogues for sufficient results.

Research limitations/implications

This paper is based on examination of 20+ industries only.

Practical implications

The author offers guidance on organizational structure, resources and return on building a world-class pricing function, and highlights common mis-steps and best practices.

Social implications

The paper also details the differences between a narrow “transactional” approval function and a strategic market-oriented function. Social implication is moving from focus on increasing price level to increasing revenues and better price structures which address needs.

Originality/value

This paper offers a new perspective on pricing functions within companies. Most managers are not aware that pricing organizations are focused on the past. The papers’ value is to shift management focus to future pricing challenges, new structures, price points, discounting rules and competitors.

Citation

Docters, R.G. (2016), "The real mission of pricing: beyond numbers to management partner", Journal of Business Strategy, Vol. 37 No. 3, pp. 12-21. https://doi.org/10.1108/JBS-02-2015-0023